How SBA measures the size of a business: receipts, employees and affiliates

13 CFR 121.102 lists what SBA considers when it sets a standard. It looks at the structure of the industry, including the degree of competition, the average firm size, start-up costs and entry barriers, and how firms are distributed by size. It looks at technological change, competition from other industries, growth trends and the industry's history, at factors that distinguish small firms in that industry, and at the objectives of SBA's programs. SBA also checks that a business at or below the standard would not be dominant in the industry (13 CFR 121.102).

SBA's Office of Size Standards reviews the effect of inflation on the receipts-based standards at least once every five years. SBA's page says standards are reviewed every five years and proposed changes are published for public comment. The standards are established by SBA's Administrator on that office's recommendation (13 CFR 121.102; SBA, size standards).

13 CFR 121.104 defines receipts as all revenue in whatever form received or accrued from whatever source, including sales of products or services, interest, dividends, rents, royalties, fees and commissions, reduced by returns and allowances. In general that is the total income, or the gross income of a sole proprietorship, plus the cost of goods sold, as those terms are reported on the business's federal income tax return. The rule names the only exclusions. They are net capital gains or losses, taxes collected for and remitted to a taxing authority, and proceeds of transactions between a business and its affiliates. The last is amounts a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker collects for someone else. Everything else counts, and the rule says so about subcontractor costs, reimbursements for purchases made at a customer's request, investment income and payroll taxes (13 CFR 121.104(a)).

SBA generally relies on the federal income tax return, with any amendments filed on or before the date the business represented its size, and it may look at other information where there is reason to believe a return is false. For a year with no return filed, SBA calculates the year's receipts from other records, such as the regular books of account, audited financial statements or a sworn statement by someone with personal knowledge (13 CFR 121.104(a)).

The period of measurement is set by the rule. A business with five or more completed fiscal years averages the total receipts of its most recently completed five fiscal years, divided by five. A business with fewer takes its total receipts for the time it has been in business, divides by the number of weeks in business, and multiplies by fifty-two. A short tax year inside the period is handled by weeks the same way. SBA's business loan, disaster loan, surety bond and investment company programs let a business use its most recently completed three fiscal years instead, and the rule says which programs those are (13 CFR 121.104(b) and (c)).

13 CFR 121.106 counts all individuals employed on a full-time, part-time or other basis, including people obtained from a temporary employee agency, a professional employer organization or a leasing concern. SBA looks at the totality of the circumstances, including the criteria the IRS uses for federal income tax, to decide who is an employee. Volunteers, meaning people who receive no compensation of any kind for the work, are not employees (13 CFR 121.106(a)).

Where the standard is a number of employees, the business's size is its average number of employees over each of the pay periods of the preceding two completed years. Part-time and temporary employees are counted the same as full-time employees. A business that has not been in business that long uses the pay periods it has had (13 CFR 121.106(b)).

Because the rules measure the business together with everyone who controls it or could. 13 CFR 121.103 says businesses are affiliates when one controls or has the power to control the other, or when a third party controls or has the power to control both. It does not matter whether the control is exercised, only that the power exists. SBA considers ownership, management, previous relationships with another business and contractual relationships, and weighs the totality of the circumstances. It counts the receipts or employees of the business and all of its domestic and foreign affiliates, whether or not an affiliate is organized for profit (13 CFR 121.103(a)).

The arithmetic follows. The average annual receipts of a business with affiliates are its own average added to the average of each affiliate, and the average number of employees is counted the same way. An affiliate acquired during the period, or an acquiring business, is counted for the whole period and not only from the day the affiliation began. A former affiliate is left out of the whole period if the affiliation ended before the date used to decide size (13 CFR 121.104(d); 13 CFR 121.106(b)).

Section 121.103 goes on to list exceptions and particular situations, among them ownership by certain investment companies, tribal and community development entities, joint ventures, franchise and license agreements, and arrangements in which a business depends on another. This guide names that section and does not go through it. Whether another business has to be counted with yours is a question about your own arrangements, and it belongs with a free counselor or an attorney; the card just below this guide names where to ask.

SBA publishes its table of size standards as a document of its own and says the same table is in 13 CFR 121.201; its page offers a size standards tool as well, and both work by NAICS code. The page adds four general requirements beside the numbers. A business must be organized for profit, independently owned and operated, not dominant in its field on a national basis, and located and operating in the United States or its territories. A business outside the country may still count if its operation in the country contributes significantly to the economy, the page notes (SBA, table of size standards and size standards).

The same page says any interested party can protest the small business size of the business chosen for an award, through the contracting officer under 13 CFR 121's own procedures. A NAICS code assigned to a contract can be appealed to SBA's Office of Hearings and Appeals within a period the page states. It also says a business's size, when it represents one, has consequences under the law, which is one more reason the answer is the business's own (SBA, size standards).

Firmenza shows the size standard SBA's table lists beside each NAICS code in your opportunity profile and your capability statement, and beside a set-aside on a notice, as a published fact in SBA's own units. It never says whether your business is within it. Set-aside codes on SAM.gov notices explains the labels a set-aside carries.

SBA does, under these rules, and the business states its own size when it represents it on a registration or an offer. This page explains the method and never applies it to a reader's business: it does not say whether your business is small for any code, and no software should. A free counselor can work through the receipts, the employees and the affiliates with you, and an attorney is the right call when the answer turns on how control is shared. The card just below this guide names where to ask.

The evaluators' other questions are separate from size. No past performance for a federal contract covers how the rules treat a business with no federal record, and SBA's small business programs covers the programs that add their own rules on ownership and control.

It cannot say what the size standard is for a given code, whether your business meets it, or whether another business is your affiliate. The first is in SBA's table, and the other two are decided under the rules above from your own records and arrangements. It read 13 CFR 121.101 to 121.106 and the lead-in of 121.201, and SBA's own pages, and it did not read the rest of part 121, where the size determination and protest procedures are.